Can Demat account be hacked? The Surprising Truth

Can Demat account be hacked? Find out the risks and vulnerabilities, and how to protect your investments. Stay informed and secure your account.

With the rise of digital platform usage, instances of fraud cases have also increased significantly.

Demat or Dematerialized accounts are used globally for holding stocks in electronic format. 

Due to its ease of use and accessibility, more people are relying on these accounts to manage their investments

Time and again the question of “can Demat account be hacked?” is raised.

While no system is perfect and completely foolproof, Demat accounts can be made relatively secure by taking certain precautions.

Depository Participants (DPs) who manage Demat accounts take measures such as encrypting data and enhancing server security to improve security.

They also take precautions to prevent unauthorized access.

However, the main concern with Demat accounts is the risk of hacking, which could result in the exposure of sensitive information such as login credentials or financial data.

There have been instances where Demat accounts of investors were hacked and their funds got wiped out.

To reduce these risks, it’s important to follow safe practices, which will be discussed further in this article.

Can Demat account be hacked?

Let’s begin by busting a myth:

Myth: If my Demat account is with the most secure brokerage, it cannot be hacked.

Reality: If you share your login credentials, there’s no stopping a scam.

The most common way of falling victim to a scam is by receiving a phone call from a spammer who asks for an OTP to complete formalities.

Unfortunately, such incidents continue to occur despite campaigns and advertisements by banks, governments, and brokerage platforms to educate the public on not sharing OTPs.

No matter how safe and secure your stock brokerage platform is if you share your login 

credentials, you leave yourself vulnerable to being scammed.

So, it’s crucial never to share OTPs with anyone.

How to protect Demat account from hackers?

There are 2 ways in which hackers can access your login credentials:

#1. Phishing attacks

Phishing attacks often come in the form of emails, SMS messages, or social media messages that contain a link to log into your Demat account.

The website you are directed to may look like your Demat login page, but it is actually a fake site. 

Entering your login details will give the hacker access to your account.

Important: Never click on links from unknown sources. Check the URL closely, as often the spelling of the website has been slightly altered to mimic the legitimate URL.

#2. Exposing Credentials

According to the CEO of the Zerodha broking platform, Nithin Kamath, 80% of 100 reported fraud cases in a year were due to individuals willingly sharing their login credentials, while the remaining 20% were due to email hacking.

There has been some noise about the hacking incidents at Zerodha. Here is some data:
Out of the ~65lk customers who traded with us last year, we have ~100 complaints of fraud. ~ 80 where login details were shared willingly & ~20 where email was hacked (all Rediffmail IDs). 1/4

— Nithin Kamath (@Nithin0dha) August 2, 2022

Important: Never share your login credentials with anyone.

Solution: Enable 2-factor authentication

2-factor authentication provides an additional layer of protection where along with login id and password you have to enter either OTP or a 6-digit pin to login into the account.

Brokers like Zerodha offer TOTP(temporary OTP option) while others require code generated by Google Authenticator.

Can shares be stolen from Demat account?

What happens if your Demat account gets hacked and the hackers sell your stocks?

The money from the sale would be transferred to the fund wallet in your Demat account.

Hackers can then use this money to purchase cheap and illiquid stocks that generally do not have any buyers. 

By placing buy orders, they help the sellers of these stocks and earn commissions. 

As a result, your original portfolio is sold and cheap, illiquid stocks are added to your account.

Conclusion

Hacking is not the only risk, other risks like unauthorized transactions, lost or stolen login credentials, or technical glitches are also of concern. 

It’s very important to keep Demat account-related information secure and up to date and monitor the account for any suspicious activity.

While hacking of the Demat account is possible but the risk can be reduced significantly by being aware, choosing a secure Depository Participant, and following best practices.

This much effort is required to protect your investments and sensitive financial data.

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